December 15th, 2015

Tony Greer made 5x his money with an early investment in Apple. The macro investor and ex-Goldman Sachs trader provides an inside look into his trading tactics, and shares his top 3 ideas right now.

Tony GreerTony Greer

Summary List Placement

Tony Greer, founder of the independent research firm TG Macro and editor of The Morning Navigator newsletter, got an early introduction to trading. 

"My dad was an over-the-counter trader for 30 years at Dean Witter," he told Business Insider. "So trading was dinner table conversation. And once I understood it, it was dinner conversation every night."

After graduating from Cornell University in 1990, Greer landed on the foreign exchange desk of Sumitomo Bank, a Japanese firm that became part of the present-day Sumitomo Mitsui Financial Group in a merger. There on the 107th floor of the World Trade Center, he sat right next to John Spallanzani, who is now a portfolio manager at Bill Miller's Miller Value Partners. 

"He was the first Italian mentor that I had," Greer recalled. "I will never forget that he gave me John Murphy's technical analysis book for my birthday one year and I started hacking away at that."

From there, he went to UBS where he started trading commodities and currencies, providing liquidity to a lot of big banks. One of the banks was Goldman Sachs, where Greer joined in 1993. 

The Apple trade

While at Goldman, Greer made "both the best and worst trade of his life." 

"Because of my love of music. I was extremely early to adopting technology in the 90s. As soon as Amazon started delivering CDs to your home, I became a fast consumer of that," he said. "A little bit later than that, I latched onto the Apple iPod."

That's when Greer combined his two passions — music and trading — into one stock. 

"I bought Apple at $15 a share and it went straight up. It doubled my money and it kept going and went to $40," he said. "And then at $42, I doubled my position."

"So now I had a really significant position in Apple that would keep me up at night and I would try to figure out how I had to trade around it." 

The dilemma came shortly after the stock ran to $220 and then moved below $200, where it sat for months.

After months of strategizing, Greer exited his entire position in Apple at $196 a share. 

"I will tell you that Apple never traded lower than that price in the history of the stock again and then it quintupled," he said. "It went from being a life-changing stock to something that could have made me wealthy. It's something that I've learned to cope with but it haunts me and I have to admit it."

However, at the time, it allowed Greer to build a nest egg big enough to strike it out on his own. In January 2010, Greer left Goldman and launched Machine Trading, his own firm, with 3 other investors. 

"We traded stocks for about 18 months and we traded our own money," he said. "It was an unbelievably valuable learning experience sitting down to trade during the fricking beginning of the tech crash."

While the trading operation survived the dotcom bubble, Greer and his investors disbanded the firm after a tumultuous 18 months. He then pivoted into sales trading at several Wall Street shops. After Cowen & Company acquired Dahlman Rose & Company — the last broker-dealer he worked at — in 2013, Greer decided to combine his 25 years of trading with 15 years of writing a daily market newsletter by launching his own research firm.

Greer's portfolio 

Greer characterizes himself as "a price action junkie" and "a sucker for recurring patterns."

"I try to figure out how to get into sectors that are performing percentage-wise or otherwise. Part of my science is measuring every sector and every index and every commodity performance every month percentage-wise," he said. "And I follow the storylines, the narratives, and figure out which sector is a good place to be."

Under the current macro backdrop, he thinks the places to be are the homebuilder stocks, transportation stocks, and gold.

"There's a perfect storm in home builders. We've got rates at zero, mortgage rates as low as they've been in history. We've got peak mortgage applications off the charts above the last 10 years for people refinancing and for new mortgages," he said.

"And then with the situation since the lockdown, people are running from cities and moving out to the suburbs and building home offices ... and then you see the homebuilders themselves and you see they are crushing earnings by a large margin and rallying."

Within the sector, he likes the leaders of the pack: Whirlpool (WHR), Home Depot (HD), and Lowe's (LOW)

Next up is the transportation sector, which Greer believes is going to rally alongside commodities. 

"If the commodity trade is going to be right, transports are going to rally. Especially now that we're up against this flatline with a bunch of transports that haven't been able to get through for the last three years," he said.

"If we break through it now, this could be a run at transports that just goes on for the next three years. So that's something that I want to be a part of."

To execute the transportation trade, he is watching the airline sector via the US Global Jets ETF (JETS) and Southwest Airlines (LUV), which he believes "is trying to break out technically."

"At some point, we're going to be back to flying. And I think at some point, you'll have a chance for the airline sector to outperform tech for a couple of months," he said. "Airlines can go up 50% for a year but I don't know of a lot of tech stocks that can go up 50% quickly for a year. So I see that as a performance opportunity in airline stocks."

For railroad stocks, he likes Union Pacific (UNP) based on its "technical merit and its place in the commodity story."

"If you watch them trend, they've been trending beautifully. They're still in an uptrend, they've held their uptrend through the lockdown," Greer said of the railroad stocks. "And if the commodity trade is right, there's going to be a lot of commodities that are shipped on rails."

He is also positive on carriers such as FedEx (FDX) and United Parcel Service (UPS).

"They've recently had a competition with Amazon and they've since sorted it out and have been able to raise prices across all three of its vertical delivery mechanisms last week," he said.

"This is after the stocks came out of a big hole and their earnings got destroyed because of the economic slowdown around the world and now they've come out of it. That's the sort of leap story for the carriers."

Greer, who calls himself "a mad gold bull," believes the big opportunities in the gold markets lies in getting mutual fund investors to adjust their allocation to gold stocks from 50 basis points where he believes it is now to 75 basis points or 1.5% or even 2%.

"That would be a material change, and you will see them go straight north from where they are now," he said. "That's a trade on my radar because it feels right to be in gold stocks now. I'm just on the lookout for this potential boost in gold if interest rates go higher from here."

How Greer trades

A self-proclaimed "slave to chart patterns", Greer likes when his technical indicators are flashing clear signals.

He watches momentum indicators like the relative strength index to inform his trading decisions.

"When I wake up bullish, I want to trade things that are going up. I'm trying to find stocks that have been sort of trending lower and then break above that downtrend line and moving averages," Greer said.

"Sometimes you take what you can get. If a pattern is right and the risk/reward is right where it looks like you can put your stop loss nice and close and just tap a bit and run away if things go wrong," he added. "That's really what I like to keep as my bread and butter and I like to keep it that simple."

NOW WATCH: We tested a machine that brews beer at the push of a button

See Also:

SEE ALSO: 2 senior PMs at Morgan Stanley's $665 billion investment-management business share their contrarian outlooks on the election, the stock market, and a vaccine — and break down how they are readying portfolios in advance

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.